Posted: May 1, 2015 |  AUTHOR: KEN FOX | CONTACT ME

 

Foxconn, primarily known as Apple’s assembler in China has new growth plans. The publically traded company, based in Taiwan, is formally known as Hon Hai Precision Industry Co, Ltd. It is the largest electronics and computer contract manufacturer in the world. Until recently, it was Apple’s primary contractor or assembler for its iPhones and iPads. However, Apple recently used other Asian contractor manufacturers including Pegatron and Quanta Computer, thus reducing its sourcing dependency on Foxconn, which also assembles electronic products from Sony, HP. Nokia, Microsoft and Dell and Nintendo.

Foxconn’s manufacturing breadth is expansive and impressive. It employs over one million employees around the world. The company has 12  large production facilities in nine Chinese cities alone. Its biggest employs between 300,000- 400,000 at its factory in Longhua, Shenzhen, China. Its model is to provide dormitory style housing, cafeterias, medical and entertainment facilities for its employees who live near the factories and work in rotations for shifts 6 days a week. Many work 12 hour days.

  Foxconn also has factories in Australia, Brazil, Hungary, Slovakia, Turkey, the Czech Republic, Malaysia (7 factories), Mexico, Pakistan. The company recently (December 2014)  closed its facility in India, affecting 22,000 employees. Foxconn acquired a 10% stake in the Sharp Corporation and since the, operates two large screen television plants in Japan via a joint venture.

Foxconn continues to expand its electronics manufacturing and assembly operations. It even has a facility in Indianapolis, IN, USA. It also has plans to invest $40 million in a robotics R&D facility with Carnegie Mellon University, to be located in Harrisburg, PA.

   

CEO Terry Gao with a robot

Foxconn plans to replace workers with one million robots within three years. These robots, named Foxbots, will assemble an average of 30,000 devices (no time frame given). The robots would be used to do simple and routine work such as spraying, welding and assembling, which is now mainly conducted by workers.

Given the reduced business from Apple and growing electronics component competition, Mr. Terry Gou, Foxconn’s CEO, 64, is seeking growth beyond its technology manufacturing core, by teaming up with U.S. medical device manufacturers:

1. In 2014, Foxconn acquired an undisclosed stake in San Diego (U.S.) based medical device start-up Sotera Wireless, Inc. Sotera makes wireless body worn devices that can monitor vital signs like blood pressure. As part of the deal, Foxconn will manufacture sensors and batteries for the company and become Sotera’s exclusive sales agent in China. Sotera’s CEO said Foxconn may eventually take over the company’s  U.S. production.

  Sotera Wireless ViSi Monitor visi

2. In 2014, Foxconn contributed $5.5 million into U.S. based Smartphone-enabled hearing device company Soundhawk, which markets itself as an “ear wearable.” ear

3. Currently, Foxconn is in talks with a Palo Alto, California based Varian Medical Systems to obtain rights to sell radiation-treatment devices in China.

As healthcare becomes more wireless and mobile based, Foxconn feels it is uniquely qualified to benefit from this growing market says Leonard Wu, general manager of Foxconn’s Healthcare Business Group. There are financial and personal reasons for the company’s interest in the healthcare business.

Financial

One source estimates revenue in the global medical device contract manufacturing business will grow 52% to $35 billion in 2016 from $23 billion in 2013, faster than the 17 % growth projected for contract manufacturing for consumer electronics in the same period. Additionally, contract manufacturers for medical devices yield higher margins of between 23-25%, compared with 4-7% for consumer electronics contract manufactures.

Personal

Foxconn’s CEO, Terry Gou, lost his first wife to breast cancer in 2005 and his younger brother to leukemia in 2007. These events prompted Mr. Gou to donate $500 million to National Taiwan University in 2008 to fund construction and operation of a new cancer treatment and prevention center in Taipei. Mr. Gou’s donation prompted the establishment of the health-care group within Foxconn (2009), and the recruitment of  medical professionals to study the equipment market and identify growth opportunities.

The Foxconn medical business is estimated to generate $200 million by 2020 from the $20 million in 2014, driven by China’s rising healthcare needs. This may represent only a fraction of Foxconn’s total annual global sales of $131 billion (2013).

Commentary

Foxconn is known as a “hidden dragon,” one of a number of obscure companies which manufacture goods, largely in China, for the world’s biggest brands in electronics, clothing, toys and home appliances. In China, the dragon is a symbol of strength, power and good fortune.

Historically, global brands from China or Taiwan were not well known. However, several brands from each country gained awareness over the past ten years (see below). Assuming, the company’s growth plans continue, Foxconn’s future “dragon” global status is due to rise as well.

Current Global Brands By Select Country

China Taiwan

-Alibaba -Asus

-Lenovo -Acer

-Tsingtao (beer) -HTC

Foxconn’s strategic move beyond electronic assembly work into medical devices and robotics will be facilitated by its meeting high standards from Apple. Terry Gao, Foxconn’s CEO, believes the robotics will be bigger than the auto industry. Additionally, these ventures, especially robotic production and use, should help increase future company profits.

Ideally, Foxconn’s entry and learning from U.S. medical device companies can facilitate their innovating new medical devices for future applications and use. We wish them continued success in a growing market.

Resources:

  1. Taiwan’s Hon Hai Faces Difficult Year, Despite Profit Leap, Yahoo News, March 31, 2105
  2. Foxconn:” Hidden Dragon” out in the Open, BBC.com, September 24, 2012
  3. Foxonn Expanding Into Health-Care Market, Wall Street Journal, April 14, 2015
  4. Foxconn Slowly Creates Foothold in Medical Device World, Medical Product Outsourcing, April 22, 2015
  5. Hearing Aid? No, Soundhawk Is an Ear Wearable., Wall Street Journal, December 2, 2014
  6. Scripps wins USAID Grant to Monitor Ebola Patients with Medical Wearable’s, Mobilhealthnews.com, February 12, 2015
  7. 2015 Ranking, The World’s Billionaires, Forbes, April 25, 2015
  8. Foxconn’s Terry Gou: “The Robots are Coming,” All Things D, July 31, 2011
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©2017, The Global Galaxy blog is produced by The Soundings Group, LLC, Charleston, South Carolina, USA, www.thesoundingsgroup.com. The company is an international business consulting firm, specializing in new market assessments, market entry strategies and marketing guidance. The scope of Global Galaxy is to cover timely international trends, issues and business building ideas. Its purpose is to educate, inform and stimulate thinking for business opportunity analyses.

 

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